Option Pricing Models Lecture Notes:
This week’s assignment is quite complex. Keep in mind that the theory behind these pricing models is the important thing to remember for this week’s assignment.
If you feel the need to understand the Black Scholes (BSOPM) model in greater detail, I direct you to and http://en.wikipedia.org/wiki/Black_Scholes.
The models we discuss this week can be used via MS Excel templates, which you will find uploaded to the course content section of our classroom under this week’s folder. There is also an alternative calculator, courtesy of 888options.com located at the Binomial & Black Scholes Calculator link. I strongly encourage you to try these out to get a feel for how the different variables play into the final determination of pricing.
1. Binomial options pricing model
In finance, the binomial options pricing model provides a generalisable numerical method for the valuation of options. The binomial model was first proposed by Cox, Ross and Rubinstein (1979). Essentially, the model uses a "discrete-time" model of the varying price over time of the underlying financial instrument. Option valuation is then via application of therisk neutrality assumption over the life of the option, as the price of the underlying instrument evolves.
Use of the model
The Binomial options pricing model approach is widely used as it is able to handle a variety of conditions for which other models cannot easily be applied. This is largely because the BOPM models the underlying instrument over time - as opposed to at a particular point. For example, the model is used to value American options which can be exercised at any point and Bermudan options which can be exercised at various points.
The model is also relatively simple, mathematically, and can therefore be readily implemented in a software (or even spreadsheet) environment. Although slower than the Black-Scholes model, it is considered more accurate, particularly for longer-dated options, and options on securities with dividend payments. For these reasons, various versions of the binomial model are widely used by practitioners in the options markets.
For options with several sources of uncertainty (e.g. real options), or for options with complicated features (e.g. Asian options), lattice methods face several difficulties and are not practical. Monte Carlo option models are generally used in these cases. Monte Carlo simulation is, however, time-consuming in terms of computation, and is not used when the Lattice approach (or a formula) will suffice. See Monte Carlo methods in finance.
Methodology
The binomial pricing model uses a "discrete-time framework" to trace the evolution of the option's key underlying variable via a binomial lattice (tree), for a given number of time steps between valuation date and option expiration.
Each node in the lattice represents a possible price of the underlying, at a particular point in time. This price evolution forms the basis for t.
A Comparison of Option Pricing ModelsEkrem Kilic 11.0.docxevonnehoggarth79783
A Comparison of Option Pricing Models
Ekrem Kilic �
11.01.2005
Abstract
Modeling a nonlinear pay o¤ generating instrument is a challenging work. The mod-
els that are commonly used for pricing derivative might divided into two main classes;
analytical and iterative models. This paper compares the Black-Scholes and binomial
tree models.
Keywords: Derivatives, Option Pricing, Black-Scholes,Binomial Tree
JEL classi�cation:
1. Introduction
Modeling a nonlinear pay o¤ generating instrument is a challenging work to
handle. If we consider a European option on a stock, what we are trying to do is
estimating a conditional expected future value. In other words we need to �nd out
the following question: what would be the expected future value of a stock given
that the price is higher than the option�s strike price? If we �nd that value we can
easily get the expected value of the option. For the case of the American options
the model need to be more complex. For this case, we need to check the path that
we reached some future value of the stock, because the buyer of the option might
exercise the option at any time until the maturity date.
To solve the problem that summarized above, �rst we need to model the move-
ment of the stock during the pricing period. The common model for the change
of the stock prices is Geometric Brownian Motion. Secondly, the future outcomes
of the model might have the same risk. Risk Neutrality assumption provides that.
By constructing a portfolio of derivative and share makes possible to have same
�E-mail address: [email protected]
A Comparison of Option Pricing Models 2
outcome with canceling out the source of the uncertainty.
The models that are commonly used for pricing derivative might divided into
two main classes. The �rst classes is the models that provide analytical formulae to
get the risk neutral price under some reasonable assumptions. The Black-Scholes
formula is in this group. The formulae that we have to price the derivatives
are quite limited. The reason is that we are trying to solve a partial di¤erential
equation at the end of the day. But mathematician could manage to solve just
someof thepartialdi¤erential equations; therefore, weareboundedto some limited
solutions.
The second classes models provide numerical procedures to price the option.
Binomial trees that �rst suggested by Cox, Ross and Rubenstein, is in this group,
because we need to follow an iterative procedure called �backwards induction�to
get option price. Monte Carlo simulations are another type of models that belongs
to this class. Also �nite di¤erencing methods are a type of numerical class.
In this paper, �rst I will introduce Black-Scholes and Binomial Tree models for
option pricing. Second I will introduce the volatility estimation methods I used
and calculate some option prices to compare models. Finally I will conclude.
2. Option Pricing Models
2.1. Black-Scholes Model
Black-Scholes formula s.
If you’re somewhat new to Options, you must have heard about the Option Greeks. In fact, a common rookie mistake with Options traders is that they ignore the Greeks. In this post, hopefully, I can convey the importance of Option Greeks explained in simple terms. This is easily one of the biggest mistakes a newbie Options trader can do.
Risk valuation for securities with limited liquidityJack Sarkissian
Everything seems simple with liquid securities - price is known, risks are more or less known too. It becomes a lot harder when we get illiquid instruments in the book. This is why we developed this model to enable modeling of securities with low liquidity and evaluate impact of risk sources associated with liquidity. And in order to do that we had to demonstrate that price formation has quantum chaotic character.
A Comparison of Option Pricing ModelsEkrem Kilic 11.0.docxevonnehoggarth79783
A Comparison of Option Pricing Models
Ekrem Kilic �
11.01.2005
Abstract
Modeling a nonlinear pay o¤ generating instrument is a challenging work. The mod-
els that are commonly used for pricing derivative might divided into two main classes;
analytical and iterative models. This paper compares the Black-Scholes and binomial
tree models.
Keywords: Derivatives, Option Pricing, Black-Scholes,Binomial Tree
JEL classi�cation:
1. Introduction
Modeling a nonlinear pay o¤ generating instrument is a challenging work to
handle. If we consider a European option on a stock, what we are trying to do is
estimating a conditional expected future value. In other words we need to �nd out
the following question: what would be the expected future value of a stock given
that the price is higher than the option�s strike price? If we �nd that value we can
easily get the expected value of the option. For the case of the American options
the model need to be more complex. For this case, we need to check the path that
we reached some future value of the stock, because the buyer of the option might
exercise the option at any time until the maturity date.
To solve the problem that summarized above, �rst we need to model the move-
ment of the stock during the pricing period. The common model for the change
of the stock prices is Geometric Brownian Motion. Secondly, the future outcomes
of the model might have the same risk. Risk Neutrality assumption provides that.
By constructing a portfolio of derivative and share makes possible to have same
�E-mail address: [email protected]
A Comparison of Option Pricing Models 2
outcome with canceling out the source of the uncertainty.
The models that are commonly used for pricing derivative might divided into
two main classes. The �rst classes is the models that provide analytical formulae to
get the risk neutral price under some reasonable assumptions. The Black-Scholes
formula is in this group. The formulae that we have to price the derivatives
are quite limited. The reason is that we are trying to solve a partial di¤erential
equation at the end of the day. But mathematician could manage to solve just
someof thepartialdi¤erential equations; therefore, weareboundedto some limited
solutions.
The second classes models provide numerical procedures to price the option.
Binomial trees that �rst suggested by Cox, Ross and Rubenstein, is in this group,
because we need to follow an iterative procedure called �backwards induction�to
get option price. Monte Carlo simulations are another type of models that belongs
to this class. Also �nite di¤erencing methods are a type of numerical class.
In this paper, �rst I will introduce Black-Scholes and Binomial Tree models for
option pricing. Second I will introduce the volatility estimation methods I used
and calculate some option prices to compare models. Finally I will conclude.
2. Option Pricing Models
2.1. Black-Scholes Model
Black-Scholes formula s.
If you’re somewhat new to Options, you must have heard about the Option Greeks. In fact, a common rookie mistake with Options traders is that they ignore the Greeks. In this post, hopefully, I can convey the importance of Option Greeks explained in simple terms. This is easily one of the biggest mistakes a newbie Options trader can do.
Risk valuation for securities with limited liquidityJack Sarkissian
Everything seems simple with liquid securities - price is known, risks are more or less known too. It becomes a lot harder when we get illiquid instruments in the book. This is why we developed this model to enable modeling of securities with low liquidity and evaluate impact of risk sources associated with liquidity. And in order to do that we had to demonstrate that price formation has quantum chaotic character.
Black-Scholes Model
Introduction
Key terms
Black Scholes Formula
Black Scholes Calculators
Wiener Process
Stock Pricing Model
Ito’s Lemma
Derivation of Black-Sholes Equation
Solution of Black-Scholes Equation
Maple solution of Black Scholes Equation
Figures
Option Pricing with Transaction costs and Stochastic Volatility
Introduction
Key terms
Stochastic Volatility Model
Quanto Option Pricing Model
Key Terms
Pricing Quantos in Excel
Black-Scholes Equation of Quanto options
Solution of Quanto options Black-Scholes Equation
Option Pricing ModelsThe Black-Scholes-Merton Model a.docxhopeaustin33688
Option Pricing Models:
The Black-Scholes-Merton Model aka Black – Scholes Option Pricing Model (BSOPM)
*
Important ConceptsThe Black-Scholes-Merton option pricing modelThe relationship of the model’s inputs to the option priceHow to adjust the model to accommodate dividends and put optionsThe concepts of historical and implied volatilityHedging an option position
*
The Black-Scholes-Merton FormulaBrownian motion and the works of Einstein, Bachelier, Wiener, ItôBlack, Scholes, Merton and the 1997 Nobel PrizeRecall the binomial model and the notion of a dynamic risk-free hedge in which no arbitrage opportunities are available.The binomial model is in discrete time. As you decrease the length of each time step, it converges to continuous time.
*
Some Assumptions of the ModelStock prices behave randomly and evolve according to a lognormal distribution. The risk-free rate and volatility of the log return on the stock are constant throughout the option’s lifeThere are no taxes or transaction costsThe stock pays no dividendsThe options are European
*
BackgroundPut and call prices are affected byPrice of underlying assetOption’s exercise priceLength of time until expiration of optionVolatility of underlying assetRisk-free interest rateCash flows such as dividendsPremiums can be derived from the above factors
*
Option ValuationThe value of an option is the present value of its intrinsic value at expiration. Unfortunately, there is no way to know this intrinsic value in advance. Black & Scholes developed a formula to price call options This most famous option pricing model is the often referred to as “Black-Scholes OPM”.
*
Note: There are many other OPMs in existence. These are mostly variations on the Black-Scholes model, and the Black-Scholes model is the most used.
The Concepts Underlying Black-ScholesThe option price and the stock price depend on the same underlying source of uncertaintyWe can form a portfolio consisting of the stock and the option which eliminates this source of uncertaintyThe portfolio is instantaneously riskless and must instantaneously earn the risk-free rate
*
Option Valuation VariablesThere are five variables in the Black-Scholes OPM (in order of importance):Price of underlying securityStrike priceAnnual volatility (standard deviation)Time to expirationRisk-free interest rate
*
Option Valuation Variables: Underlying PriceThe current price of the underlying security is the most important variable.For a call option, the higher the price of the underlying security, the higher the value of the call.For a put option, the lower the price of the underlying security, the higher the value of the put.
*
Option Valuation Variables: Strike PriceThe strike (exercise) price is fixed for the life of the option, but every underlying security has several strikes for each expiration monthFor a call, the higher the strike price, the lower the value of the call.For a put, the higher t.
Dividend portfolio – multi-period performance of portfolio selection based so...Bogusz Jelinski
What will happen to your investment if you ignore change of share prices while calculating both returns and risk during stocks portfolio selection? Is it profitable in long term to
sell a share when its price has started to skyrocket?
Effects of Option Characteristics and Underlying Stock on Option BetaDharma Bagoes Oka
Beta (β) is one of the risk management tools to capture the risk exposures of hedge-fund investments. As most of hedge funds today trade derivative securities, the research on the measurement of derivative beta is important. The aim of this paper is to examine the factors, which may have impacts on option beta in the United States market. My hypothesis is comprised into three main parts. First, I hypothesize that 5 variables (type of option, strike price, days to maturity, firm size and book to market ratio) have linear relationship with the option beta. Second, I hypothesize that the strength of linear relationship is varied by the type of the industry. Third, I hypothesize that the strength of linear relationship is also varied by these 5 types of variables itself. To begin the process, I use regression method to estimate the beta of underlying stock. Then, I estimate the option beta by multiplying the beta of underlying stock and the option elasticity. I then use regression method to test whether the 5 variables have linear relationship with option beta. I find that 3 variables (type of option, strike price and days to maturity) have the most significant linear relationship with option beta, while firm size has less significant linear relationship and book to market ratio have no significant linear relationship. Furthermore, using 2-way ANOVA, I test whether strength of linear relationship is varied by the type of the industry and the 5 types of variables. There is not enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of the industry, instead, there is enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of variables.
Stochastics, Volume Rate of Change, Relative Strength to Index, Bid/Ask Volume ratio, Floor Trader Pivots and Institutional buying/selling are 6 of our most useful indicators for running the ITRS algorithms to identify risk and growth factors related to index trend reversals. We use a total of 33 indicators that each generate a critical factor.
Effects of option characteristics and underlying stock on option beta articleDharma Bagoes Oka
Beta (β) is one of the risk management tools to capture the risk exposures of hedge-fund investments. As most of hedge funds today trade derivative securities, the research on the measurement of derivative beta is important. The aim of this paper is to examine the factors, which may have impacts on option beta in the United States market. My hypothesis is comprised into three main parts. First, I hypothesize that 5 variables (type of option, strike price, days to maturity, firm size and book to market ratio) have linear relationship with the option beta. Second, I hypothesize that the strength of linear relationship is varied by the type of the industry. Third, I hypothesize that the strength of linear relationship is also varied by these 5 types of variables itself. To begin the process, I use regression method to estimate the beta of underlying stock. Then, I estimate the option beta by multiplying the beta of underlying stock and the option elasticity. I then use regression method to test whether the 5 variables have linear relationship with option beta. I find that 3 variables (type of option, strike price and days to maturity) have the most significant linear relationship with option beta, while firm size has less significant linear relationship and book to market ratio have no significant linear relationship. Furthermore, using 2-way ANOVA, I test whether strength of linear relationship is varied by the type of the industry and the 5 types of variables. There is not enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of the industry, instead, there is enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of variables.
This modules animation What Is Communication provides background .docxhopeaustin33688
This module's animation What Is Communication? provides background for this assignment.
The six characteristics from which you should choose are:
Involves interdependent individuals
Is inherently rational
Exists on a continuum
Features verbal and nonverbal messages
Exists in varied forms
Varies in effectiveness
Write a 1-page essay that explains 2 of the 6 characteristics of interpersonal communication and illustrate how each one is demonstrated in your communication style. Include at least one quotation from your research. Cite your source in APA format.
.
▪Nursing Theory PowerPoint Presentation.This is a group project .docxhopeaustin33688
▪
Nursing Theory PowerPoint Presentation.
This is a group project this is my part…
Lydia Hall The 3 Cs Nursing Theory. (im doing the CORE, and the strengths and weakness of the whole theory)
WIKI Project Guideline:
1
4 to 6 slides plus a reference slide on the nursing theory
(THE CORE & the strengths and the weakness)
2 responsible to
create 2-3 voice-over PPT (FEMALE VOICE)
slides on their designated topic area.
3Please note that
APA
format is required within the PowerPoint presentation. Reference slides are required at the end of the presentation.
This assignment will be graded according to the following rubric:
Criteria
Points
WIKI content 8
APA in-text citation and reference page 4
Multimedia Inclusion 3
Total
15
.
More Related Content
Similar to Option Pricing Models Lecture NotesThis week’s assignment is .docx
Black-Scholes Model
Introduction
Key terms
Black Scholes Formula
Black Scholes Calculators
Wiener Process
Stock Pricing Model
Ito’s Lemma
Derivation of Black-Sholes Equation
Solution of Black-Scholes Equation
Maple solution of Black Scholes Equation
Figures
Option Pricing with Transaction costs and Stochastic Volatility
Introduction
Key terms
Stochastic Volatility Model
Quanto Option Pricing Model
Key Terms
Pricing Quantos in Excel
Black-Scholes Equation of Quanto options
Solution of Quanto options Black-Scholes Equation
Option Pricing ModelsThe Black-Scholes-Merton Model a.docxhopeaustin33688
Option Pricing Models:
The Black-Scholes-Merton Model aka Black – Scholes Option Pricing Model (BSOPM)
*
Important ConceptsThe Black-Scholes-Merton option pricing modelThe relationship of the model’s inputs to the option priceHow to adjust the model to accommodate dividends and put optionsThe concepts of historical and implied volatilityHedging an option position
*
The Black-Scholes-Merton FormulaBrownian motion and the works of Einstein, Bachelier, Wiener, ItôBlack, Scholes, Merton and the 1997 Nobel PrizeRecall the binomial model and the notion of a dynamic risk-free hedge in which no arbitrage opportunities are available.The binomial model is in discrete time. As you decrease the length of each time step, it converges to continuous time.
*
Some Assumptions of the ModelStock prices behave randomly and evolve according to a lognormal distribution. The risk-free rate and volatility of the log return on the stock are constant throughout the option’s lifeThere are no taxes or transaction costsThe stock pays no dividendsThe options are European
*
BackgroundPut and call prices are affected byPrice of underlying assetOption’s exercise priceLength of time until expiration of optionVolatility of underlying assetRisk-free interest rateCash flows such as dividendsPremiums can be derived from the above factors
*
Option ValuationThe value of an option is the present value of its intrinsic value at expiration. Unfortunately, there is no way to know this intrinsic value in advance. Black & Scholes developed a formula to price call options This most famous option pricing model is the often referred to as “Black-Scholes OPM”.
*
Note: There are many other OPMs in existence. These are mostly variations on the Black-Scholes model, and the Black-Scholes model is the most used.
The Concepts Underlying Black-ScholesThe option price and the stock price depend on the same underlying source of uncertaintyWe can form a portfolio consisting of the stock and the option which eliminates this source of uncertaintyThe portfolio is instantaneously riskless and must instantaneously earn the risk-free rate
*
Option Valuation VariablesThere are five variables in the Black-Scholes OPM (in order of importance):Price of underlying securityStrike priceAnnual volatility (standard deviation)Time to expirationRisk-free interest rate
*
Option Valuation Variables: Underlying PriceThe current price of the underlying security is the most important variable.For a call option, the higher the price of the underlying security, the higher the value of the call.For a put option, the lower the price of the underlying security, the higher the value of the put.
*
Option Valuation Variables: Strike PriceThe strike (exercise) price is fixed for the life of the option, but every underlying security has several strikes for each expiration monthFor a call, the higher the strike price, the lower the value of the call.For a put, the higher t.
Dividend portfolio – multi-period performance of portfolio selection based so...Bogusz Jelinski
What will happen to your investment if you ignore change of share prices while calculating both returns and risk during stocks portfolio selection? Is it profitable in long term to
sell a share when its price has started to skyrocket?
Effects of Option Characteristics and Underlying Stock on Option BetaDharma Bagoes Oka
Beta (β) is one of the risk management tools to capture the risk exposures of hedge-fund investments. As most of hedge funds today trade derivative securities, the research on the measurement of derivative beta is important. The aim of this paper is to examine the factors, which may have impacts on option beta in the United States market. My hypothesis is comprised into three main parts. First, I hypothesize that 5 variables (type of option, strike price, days to maturity, firm size and book to market ratio) have linear relationship with the option beta. Second, I hypothesize that the strength of linear relationship is varied by the type of the industry. Third, I hypothesize that the strength of linear relationship is also varied by these 5 types of variables itself. To begin the process, I use regression method to estimate the beta of underlying stock. Then, I estimate the option beta by multiplying the beta of underlying stock and the option elasticity. I then use regression method to test whether the 5 variables have linear relationship with option beta. I find that 3 variables (type of option, strike price and days to maturity) have the most significant linear relationship with option beta, while firm size has less significant linear relationship and book to market ratio have no significant linear relationship. Furthermore, using 2-way ANOVA, I test whether strength of linear relationship is varied by the type of the industry and the 5 types of variables. There is not enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of the industry, instead, there is enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of variables.
Stochastics, Volume Rate of Change, Relative Strength to Index, Bid/Ask Volume ratio, Floor Trader Pivots and Institutional buying/selling are 6 of our most useful indicators for running the ITRS algorithms to identify risk and growth factors related to index trend reversals. We use a total of 33 indicators that each generate a critical factor.
Effects of option characteristics and underlying stock on option beta articleDharma Bagoes Oka
Beta (β) is one of the risk management tools to capture the risk exposures of hedge-fund investments. As most of hedge funds today trade derivative securities, the research on the measurement of derivative beta is important. The aim of this paper is to examine the factors, which may have impacts on option beta in the United States market. My hypothesis is comprised into three main parts. First, I hypothesize that 5 variables (type of option, strike price, days to maturity, firm size and book to market ratio) have linear relationship with the option beta. Second, I hypothesize that the strength of linear relationship is varied by the type of the industry. Third, I hypothesize that the strength of linear relationship is also varied by these 5 types of variables itself. To begin the process, I use regression method to estimate the beta of underlying stock. Then, I estimate the option beta by multiplying the beta of underlying stock and the option elasticity. I then use regression method to test whether the 5 variables have linear relationship with option beta. I find that 3 variables (type of option, strike price and days to maturity) have the most significant linear relationship with option beta, while firm size has less significant linear relationship and book to market ratio have no significant linear relationship. Furthermore, using 2-way ANOVA, I test whether strength of linear relationship is varied by the type of the industry and the 5 types of variables. There is not enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of the industry, instead, there is enough evidence to infer that the strength of linear relationship between the 5 variables to option beta is varied by the type of variables.
Similar to Option Pricing Models Lecture NotesThis week’s assignment is .docx (20)
This modules animation What Is Communication provides background .docxhopeaustin33688
This module's animation What Is Communication? provides background for this assignment.
The six characteristics from which you should choose are:
Involves interdependent individuals
Is inherently rational
Exists on a continuum
Features verbal and nonverbal messages
Exists in varied forms
Varies in effectiveness
Write a 1-page essay that explains 2 of the 6 characteristics of interpersonal communication and illustrate how each one is demonstrated in your communication style. Include at least one quotation from your research. Cite your source in APA format.
.
▪Nursing Theory PowerPoint Presentation.This is a group project .docxhopeaustin33688
▪
Nursing Theory PowerPoint Presentation.
This is a group project this is my part…
Lydia Hall The 3 Cs Nursing Theory. (im doing the CORE, and the strengths and weakness of the whole theory)
WIKI Project Guideline:
1
4 to 6 slides plus a reference slide on the nursing theory
(THE CORE & the strengths and the weakness)
2 responsible to
create 2-3 voice-over PPT (FEMALE VOICE)
slides on their designated topic area.
3Please note that
APA
format is required within the PowerPoint presentation. Reference slides are required at the end of the presentation.
This assignment will be graded according to the following rubric:
Criteria
Points
WIKI content 8
APA in-text citation and reference page 4
Multimedia Inclusion 3
Total
15
.
••You are required to write a story; explaining and analyzing .docxhopeaustin33688
•
•
You are required to write a story;
explaining and analyzing
how a certain independent variable ( at the individual, group or organization levels) affects a
dependent
variable (
behaviour
or attitude),
•
You will freely select your story from “ life” : from college, home, neighborhood, a book , a video/ movie, TV…etc. as long as the
story has two clear dependent and independent variables.
•
You will finish with
a conclusion
that lists
both variables
and their
relationship (cause and effect).
.
•Required to read American Mashup A Popular Culture Reader. Ed. A.docxhopeaustin33688
•Required to read American Mashup: A Popular Culture Reader. Ed. Aaron Michael Morales. Boston: Pearson, 2012.
After reading Richard Willig’s “ ‘CSI Effect’ Has Juries Wanting More Evidence” in
American Mashup
on pages 204-210. Consider the types of sources Willig uses to support his main claims. please present at least four (4) specific examples of Willig’s sources. For each source, please identify what that person’s professional ability is and explain how that person’s position of authority helps Willig build his own credibility with readers.
.
• ntercultural Activity Presentation Final SubmissionResourc.docxhopeaustin33688
•
ntercultural
Activity Presentation Final Submission
Resources
•
Intercultural Activity Presentation Final Submission Scoring Guide
.
•
Writing Feedback Tool
.
•
APA Style and Format
.
•
Using Adobe Connect
.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
•
Competency 3:
Demonstrate knowledge, skills, and attitudes to increase intercultural competence.
•
Compare differing cultures.
•
Discuss the potential impact cultural differences have on communication efforts.
•
Competency 4:
Analyze how nonverbal communication (body language) influences intercultural communication.
•
Analyze how nonverbal communication affects intercultural communication.
•
Competency 5:
Communicate effectively in a variety of formats and contexts.
•
Integrate cross-cultural experiences with course material.
•
Write coherently to support a central idea in appropriate format with correct grammar, usage, and mechanics.
Instructions
This is the second part of your course project. For this assignment, create a 5–7 minute Adobe Connect video presentation with a visual component (PowerPoint) in which you narrate and describe an intercultural activity and experience. Complete the following for your presentation:
•
Engage in an intercultural activity or activities with a culture other than your own. You may focus on the same culture you investigated for your Unit 9 paper or choose one that is new to you; however, you must choose a different culture than the one from whom you interviewed someone in Unit 5. Some suggestions for activities to engage in include:
•
Eating at an ethnic restaurant.
•
Visiting a courthouse, jail, military installation, school, retirement home, and other ethnically-diverse institution.
•
Visiting a part of town that is culturally different.
•
Visiting or attending a service of another world religion.
•
Attending a celebration or an ethnically diverse craft fair.
•
Going to a shop that is associated with a particular ethnic group.
•
Visiting a school that teaches ESL (English as a Second Language) or ELL (English Language Learners).
•
Visiting an international student organization at a college or university.
•
Visiting or socializing with people from other cultures.
•
To add perspective and context to your presentation, gather resources such as informal interviews with people from the respective culture, corresponding text readings and articles, Web sites, and media presentations.
•
In your presentation, specifically address the following, using examples and illustrations from your intercultural experience(s) and the resources you collected:
•
Compare the culture you engaged in with your own.
•
Discuss the potential impact cultural differences have on communication.
•
Analyze how nonverbal communication affects intercultural communication.
•
Summarize your thoughts, questions, and viewpoints regarding your experience.
•
.
•Read Chapter 15 from your textbookEthical Controversy Ident.docxhopeaustin33688
•Read Chapter 15 from your textbook
Ethical Controversy
Identify a current ethical controversy that you want to learn more about in business, media, technology, medicine, or bioethics. Write a
three-page analysis
on the major sides in the controversy. In your analysis paper, you need to:
Define the issue and include the following details:
People involved
Field (business, media, technology, medicine, or bioethics)
Purpose
Time period
Discuss the major positions being taken in the debate.
Conclude with your own reflections and opinions on the subject.
Submission Requirements:
Write the paper in APA format including introduction, body, and conclusion.
Add the following sections in APA format:
Cover Page
Header
Page Numbers
References Page
Use 12-point Arial font and double space.
.
· ResearchWorks Cited Page (minimum of 5 reputable resources.docxhopeaustin33688
·
Research/Works Cited Page (minimum of 5 reputable resources And 5 Pages or 1400 words )
:
I need someone to write my research paper with minimum of 5 reputable reseources and 5 pages or 1400 words . And the the research topic is
Gay Issues.
Research
Clearly defined academic research
:
Did your display/project provide Theory, Data, Studies, Organizations,
Solution
s, Forms of Activism and/or Awareness?
Organization
is your information presented in a way that is well organized and coherent? When you verbally share what you know do you demonstrate an educated knowledge of the topic?
Time
did you put in time for planning, developing your project and to educate the class?
On the attachment I have attached my Presentation about
Gay Issues and My old work of writing so that you can write with same level of writing.
Gay Issues
.
‘The Other Side of Immigration’ Questions1. What does one spea.docxhopeaustin33688
‘
The Other Side of Immigration’ Questions
1. What does one speaker in the film mean by migration is not the problem? Do most Mexican immigrants want to stay in the US?
2. Describe how undocumented immigrants create a fantasy for those Mexicans planning to immigrate.
3. How does NAFTA (North American Free Trade Agreement) play a part in the rural Mexicans’ inability to make a living? Be specific.
4. What is the significance of government not providing subsidies or revealing funding opportunities to the agricultural/pastoral communities?
5. Name two solutions to reducing undocumented immigration that were mentioned in the film. How would they work?
From the movie '
The Other Side of Immigration'
.
•Topic What is an ethical leader and how do ethical leaders differ .docxhopeaustin33688
•Topic: What is an ethical leader and how do ethical leaders differ from other leaders? What are the factors that promote or hinder the development of ethical leadership in organisations (e.g., personal characteristics of leaders and what characteristics of a leader‘s environment)?
• 2500 words (+/- 10%) in essay format
•Requirements: MINIMUM of 8 peer reviewed academic journal articles
–Text book or reference books are additional references
–General websites/blogs , newpapers, magazines are not acceptable references
•Submission method: Upload a soft copy of a Microsoft Word Document ( .doc or .docx format) to Turnitin on Moodle
•Correct Harvard Anglia referencing is important
.
·Term Paper International TerrorismDue Week 10 and worth .docxhopeaustin33688
·
Term Paper: International Terrorism
Due Week 10 and worth 200 points
Choose an international terrorist group from the following list, and use the Internet or Strayer databases to research the origin, purpose, and effects on the U.S. or targeted countries.
·
Hezbollah
·
HAMAS
·
Al Qaeda (AQ)
·
Al-Shabaab
·
Haqqani Network (HQN)
Write a ten to fifteen (10-15) page paper in which you:
6.
Provide a brief description of the group, and summarize its origins.
7.
Explain the group’s major motivation(s) (beliefs or causes), and / or its justification for engaging in terrorism.
8.
Describe the group’s major sources of both financial and non-financial support.
9.
Evaluate the importance of the group’s use of media to aid in its terrorist activities. Indicate, at a minimum, the group’s purpose for using the media, the image being portrayed, and the preferred methods of communication.
10.
Determine whether or not the group has a legitimate complaint or demand. Defend your response.
11.
Determine whether or not the group and its activities are of importance to the U.S., and explain the key reasons that they are or are not significant.
12.
Analyze the response of the U.S. to the group or its activities, regardless of whether or not either the group or its activities directly threaten or target the U.S. Determine whether or not that response has been effective. Support your answer with examples of such effectiveness—or the lack thereof.
13.
Suggest the major changes you would make geared toward increasing the efficiency of the U.S.’s response to the group. Justify your response.
14.
Use at least five (5) quality resources in this assignment
And
·
Assignment 5: Senior Seminar Project
Due Week 10 and worth 200 points
In Week 1, you chose a topic area and problem or challenge within that area. Throughout this course, you have researched the dynamics of the problem. The final piece of your project is to develop a viable solution that considers resources, policy, stakeholders, organizational readiness, administrative structures and other internal and external factors, as applicable. Using the papers you have written throughout this course, consolidate your findings into a succinct project.
Write a ten (10) page paper that as a minimum, your project should include:
1.
Identify the topical area (e.g., local police department, community jail, border patrol)
2.
Define a problem or challenge within your topical area that you understand in some depth or have an interest in (examples include high crime rate, poor morale, high levels of violence or recidivism, high number of civilian complaints of harassment, inadequate equipment). Outline the context of the problem or challenge, including the history and any policy decisions that have contributed to the situation.
3.
Describe how internal or external stakeholders have influenced the situation in a positive or negative way. How will you consider stakeholders in your so.
•Prepare a 4-5 page draft Code of Ethics paper sharing the following.docxhopeaustin33688
•Prepare a 4-5 page draft Code of Ethics paper sharing the following:
1) your world view; how you see good and bad, right and wrong, and how you respond to issues. Examine human resources management and
2) share your organization’s core values or principles.
Comment
3) on the validity of those values (are they consistent?).
4) How does everything you shared (#1, 2, 3) impact HR decisions in the workplace? Comment on how you see truth?
Is there such a thing as absolute truth? If so, what is it?
I want her on Wednesday morning at 10
.
·Sketch the context for, define, and tell the significanceafter.docxhopeaustin33688
·
Sketch the context for, define, and tell the significance/after-effect of each, in terms of late-19th & early-20th-century American history & culture: from Sinclair book (The Jungle)
200 word:
1-
1-
National Labor Relations Act (1935) & Fair Labor Standards Act (1938)
·
give the context for, define, and tell the significance/after-effect of each of the following, in terms of 20th-century US culture/history: from Englehardt book (The End of Victory Culture)
200 word:
1-1-
anti-war protests (1967-71) and the "counter-culture"
2-
2-
Vietnam Veterans Memorial (dedicated 1982) [not covered in book; see
http://virtualwall.org/
]
3-
3-
"Authorization of Use of Military Force against Terrorists" Resolution (Sept. 14, 2001)
·
Essays : 250 to 300 word please
choose one of these as you like:
1.
Why was Socialism considered a "radical" ideology and why didn't it flourish in early 20th century America?
2.
In what ways was the Progressive Era (1906-20) truly "progressive" or not; and the "New Deal" (1933-38) really "new" or not, especially in regards to the health, safety and daily lives of U.S. workers and consumers?
.
• Each thread is 650 words• Each thread and reply references at le.docxhopeaustin33688
• Each thread is 650 words
• Each thread and reply references at least 3 peer-reviewed sources and 1 biblical integration.
• All sources are cited in current APA format.
• Proper spelling and grammar are used.
• Sentences are complete, clear, and concise.
***Pepsi Launched a new global Branding campaign based on the cocept of live in the moment called "Live For Now." It did extensive research prior to the campaign's lauch. What research should be done to determine if the campaign is resonating with worldwide audiences?***
.
ØFind a Food borne epidemicIllness that occurred in the U.S. in.docxhopeaustin33688
Ø
Find a Food borne epidemic/Illness that occurred in the U.S. in the last 5 years
Ø
Describe what caused it, how it happened, and how it could have been prevented
Ø
What steps were taken to rectify the situation, both short term and long term
1-2 pages
.
Organizational BehaviorDisney Animation - John LasseterThe case focu.docxhopeaustin33688
Organizational BehaviorDisney Animation - John LasseterThe case focuses on John Lasseter, who currently is the creative head of Disney Animation Studios and Pixar Animation Studios, both of which are owned by The Walt Disney Company. The case chronicles Lasseter’s interests in animation from a young age, the relationship he developed with the Disney organization, his developing interest in computer-animation and consequent demise at Disney Studios, his subsequent award-winning success with computer animation at Pixar Studios, and his recent ascension to creative head of Disney’s Animation Studio as part of the Pixar-Disney merger.The case provides a marvelous illustration of the many types of interpersonal power ¾ reward, coercive, legitimate, referent, and expert that exist within an organization. The case also shows how power can be used to promote the well-being of the organization and its members or to benefit specific people’s interests at the expense of others’ interests. Herein, the two faces of power positive and negative come into play. Another linkage between the chapter material and the case occurs in the form of concerns about the ethical versus unethical use of power. Finally, the case can be used to explore the concepts of organizational politics and political behavior in organizations. Organizational politics often has a negative connotation, and some of the case facts lend themselves to reinforcing this negative connotation.Power and Politics in the Fall and Rise of John LasseterJohn Lasseter grew up in a family heavily involved in artistic expression. Lasseter was drawn to cartoons as a youngster. As a freshman in high school he read a book entitled The Art of Animation. The book, about the making of the Disney animated film Sleeping Beauty, proved to be a revelation for Lasseter. He discovered that people could earn a living by developing cartoons. He started writing letters to The Walt Disney Company Studios regarding his interest in creating cartoons. Studio representatives, who corresponded with Lasseter many times, told him to get a great art education, after which they would teach him animation.When Disney started a Character Animation Program at the California Institute of Arts film school, Lasseter enrolled in the program after encouragement from the studio. Classes were taught by extremely talented Disney animators who also shared stories about working with Walt Disney himself. During summer breaks, jobs at Disneyland further fueled Lasseter’s passion for working as an animator for Disney Studios. Full of excitement, Lasseter joined the Disney animation staff in 1979 after graduation. However, he soon met with disappointment.According to Lasseter, “[t]he animation studio wasn’t being run by these great Disney artists like our teachers at Cal Arts, but by lesser artists and businesspeople who rose through attrition as the grand old men retired.” Lasseter was told, “[y]ou put in your time for 20 years and do what you’r.
Organizational Behavior Case Study on LeadershipName Tan Yee .docxhopeaustin33688
Organizational Behavior Case Study on Leadership
Name: Tan Yee Li Fiona
Student ID: S3447594
Course: RMIT Business (Management)
Leadership, ethics and organizational failure in a post-colonial context: a case study of genocide in Rwanda.
Introduction
Groups, teams and states are major characteristics of organizational life. It is believed that majority of the organization’s practices need a lot of coordination through working as a team and a group.The leadership of an organization is important in terms of the development of the goals and objectives. Leaders within an organization are responsible for developing the goals and objectives of the organization. In most cases, the success of an organization is usually attributed to the leaders of the organization. The genocide in Rwanda was instigated by the hostility between the Hutu and Tutsi as a result of polarization of the two ethnic groups by the colonial era. The colonization process favored one group over the other. It is believed that the leadership of Rwanda at the time played a major role. Leadership in every country plays a major role in the unity of the nation and in fostering peace and co-existence between different ethnic groups. Therefore the leadership of Rwanda at the time failed to quell the existence of animosity between the Hutu and the Tutsi leading to the experience of genocide that led to mass killings. The paper aims at discussing leadership, ethics and organizational failure in a post-colonial context with a case study of genocide in Rwanda. Main emphasis is laid on organizational failure that instigated the genocide and in particular the correlation between the key leaders and geo-political relations (Scott, 1998).
Leadership traits and concepts
Leadership is considered as the ability to influence the followers towards the achievement of set goals and objectives. Leadership is closely related to management which is aimed at ensuring compliance from the organizational members. The trait theory of leadership is important in terms of defining leadership. The characteristics of the leader can be used for the determination of their leadership styles. According to the behavioral theories of leadership, the specific behaviors of the leaders differentiate the leaders from the non leaders. According to the traits theory of leadership, social, physical, personality or intellectual traits can be used for the purpose of differentiating the leaders from the non leaders. According to the theory, the leader is also supposed to be qualified and open. The contingency theory on the other hand analyzes the environment in which the leader operates. Situational leadership theory examines the ability of the followers to readily accept the instructions of the leaders. There are also various styles of leadership and it plays an important role in determining the potential of the leaders. The charismatic leaders usually portray unconventional behaviors and usually understand. On the other.
ORGANIZATIONAL ASSESSMENT WORKSHEET
Organizational Profile
This category is a snapshot of the organization, the key influences that affect how it operates, and the key challenges that it faces.
- Briefly describe the organization, including its services; its size; its geographic community; its key patient or customer groups; the number of patients it services; and its current facilities, equipment, and technology.
- Briefly describe the organization’s key challenges
Leadership
This category examines how the organizational leaders address values, directions, and performance expectations as well as how focused they are on customers, stakeholders, empowerment, innovation, and learning. This category also examines how the organization addresses its responsibilities to the public and how it supports the community.
- Based on the above indicators, describe one to three key strengths of the organization’s leadership.
- Based on the above indicators, describe one to three areas in which the organization’s leadership can improve.
Strategic Planning
This category examines how the organization develops strategic objectives and action plans and how progress toward the chosen strategic objectives is measured.
- Based on the above indicators, describe one to three key strengths of the organization’s strategic planning.
- Based on the above indicators, describe one to three areas of the organization’s strategic planning that can be improved.
Focus on Patients, Other customers, and Markets
This category examines how the organization determines requirements, expectations, and preferences of patients, other customers, and markets. It also examines how the organization builds relationships with patients and other customers and determines the key factors that lead to their acquisition, satisfaction, loyalty, and retention and to healthcare service expansion.
- Based on the above indicators, describe one to three key strengths in how the organization focuses on patients, other customers, and markets.
- Based on the above indicators, describe one to three opportunities that the organization can take to improve how it focuses on patients, customers, and markets.
Measurement, analysis, and Knowledge Management
This category examines how the organization selects, gathers, analyzes, manages, and improves its data, information, and knowledge assets.
- Based on the above indicators, describe one to three key strengths of the organization’s measurement, analysis, and knowledge management approaches.
- Based on the above indicators, describe one to three opportunities that the organization can take to improve its measurement, analysis, and knowledge management approaches.
Staff Focus
This category examines how the organization’s work systems and staff learning and motivation enable all staff to develop and utilize their full potential in alignment with the organization’s ove.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
Instructions for Submissions thorugh G- Classroom.pptxJheel Barad
This presentation provides a briefing on how to upload submissions and documents in Google Classroom. It was prepared as part of an orientation for new Sainik School in-service teacher trainees. As a training officer, my goal is to ensure that you are comfortable and proficient with this essential tool for managing assignments and fostering student engagement.
Acetabularia Information For Class 9 .docxvaibhavrinwa19
Acetabularia acetabulum is a single-celled green alga that in its vegetative state is morphologically differentiated into a basal rhizoid and an axially elongated stalk, which bears whorls of branching hairs. The single diploid nucleus resides in the rhizoid.
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
Embracing GenAI - A Strategic ImperativePeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Unit 8 - Information and Communication Technology (Paper I).pdfThiyagu K
This slides describes the basic concepts of ICT, basics of Email, Emerging Technology and Digital Initiatives in Education. This presentations aligns with the UGC Paper I syllabus.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Francesca Gottschalk - How can education support child empowerment.pptxEduSkills OECD
Francesca Gottschalk from the OECD’s Centre for Educational Research and Innovation presents at the Ask an Expert Webinar: How can education support child empowerment?
Francesca Gottschalk - How can education support child empowerment.pptx
Option Pricing Models Lecture NotesThis week’s assignment is .docx
1. Option Pricing Models Lecture Notes:
This week’s assignment is quite complex. Keep in mind that
the theory behind these pricing models is the important thing to
remember for this week’s assignment.
If you feel the need to understand the Black Scholes (BSOPM)
model in greater detail, I direct you to
and http://en.wikipedia.org/wiki/Black_Scholes.
The models we discuss this week can be used via MS Excel
templates, which you will find uploaded to the course content
section of our classroom under this week’s folder. There is
also an alternative calculator, courtesy
of 888options.com located at the Binomial & Black Scholes
Calculator link. I strongly encourage you to try these out to get
a feel for how the different variables play into the final
determination of pricing.
1. Binomial options pricing model
In finance, the binomial options pricing model provides a
generalisable numerical method for the valuation of options.
The binomial model was first proposed by Cox, Ross and
Rubinstein (1979). Essentially, the model uses a "discrete-time"
model of the varying price over time of the underlying financial
instrument. Option valuation is then via application of therisk
neutrality assumption over the life of the option, as the price of
the underlying instrument evolves.
Use of the model
The Binomial options pricing model approach is widely used as
it is able to handle a variety of conditions for which other
models cannot easily be applied. This is largely because the
BOPM models the underlying instrument over time - as opposed
to at a particular point. For example, the model is used to
value American options which can be exercised at any point
and Bermudan options which can be exercised at various
points.
2. The model is also relatively simple, mathematically, and can
therefore be readily implemented in a software (or
even spreadsheet) environment. Although slower than
the Black-Scholes model, it is considered more accurate,
particularly for longer-dated options, and options on securities
with dividend payments. For these reasons, various versions of
the binomial model are widely used by practitioners in the
options markets.
For options with several sources of uncertainty (e.g. real
options), or for options with complicated features (e.g. Asian
options), lattice methods face several difficulties and are not
practical. Monte Carlo option models are generally used in
these cases. Monte Carlo simulation is, however, time-
consuming in terms of computation, and is not used when the
Lattice approach (or a formula) will suffice. See Monte Carlo
methods in finance.
Methodology
The binomial pricing model uses a "discrete-time framework" to
trace the evolution of the option's key underlying variable via a
binomial lattice (tree), for a given number of time steps between
valuation date and option expiration.
Each node in the lattice represents a possible price of the
underlying, at a particular point in time. This price evolution
forms the basis for the option valuation.
The valuation process is iterative, starting at each final node,
and then working backwards through the tree to the first node
(valuation date), where the calculated result is the value of the
option.
Option valuation using this method is, as described, a three step
process:
1. price tree generation
2. calculation of option value at each final node
3. progressive calculation of option value at each earlier node;
the value at the first node is the value of the option.
For a more detailed explanation of the BOPM see:
· Cox JC, Ross SA and Rubinstein M. 1979. Options pricing: a
3. simplified approach, Journal of Financial Economics, 7:229-
263.1
2. Black-Scholes Model
Probably the most famous tool associated with option pricing.
Black and Scholes developed a simple model that can be
programmed in a spreadsheet or on a hand calculator to price
options the Black Scholes valuation is often called a risk neutral
valuation.
The Black-Scholes formula was the first widely used model for
option pricing. This formula can be used to calculate a
theoretical value for an option using current stock prices,
expected dividends, the option's strike price, expected interest
rates, time to expiration, and expected stock volatility. While
the Black-Scholes model does not perfectly describe real-world
options markets, it is still often used in the valuation and
trading of options.
I. The variables of the Black Scholes formula are:
· Stock Price
· Strike Price
· Time remaining until expiration expressed as a percent of a
year
· Current risk-free interest rate
· Volatility measured by annual standard deviation.
II. Why Is Black-Scholes So Attractive?
· It is Easy
· Four of the five necessary parameters are observable
· Investor's risk aversion does not affect value; Formula can be
used by anyone, regardless of willingness to bear risk
· It does not depend on the expected return of the stock
· Investors with different assessments of the stock's expected
return will nevertheless agree on the call price.
3. The Greeks
The Greeks are a collection of statistical values (expressed as
percentages) that give the investor a better overall view of how
a stock has been performing. These statistical values can be
helpful in deciding what options strategies are best to use. The
4. investor should remember that statistics show trends based on
past performance. It is not guaranteed that the future
performance of the stock will behave according to the historical
numbers. These trends can change drastically based on new
stock performance.
The Greeks are vital tools in risk management. Each Greek
(with the exception of theta) represents a specific measure
of risk in owning an option, and option portfolios can be
adjusted accordingly ("hedged") to achieve a desired exposure;
see for example Delta hedging.
As a result, a desirable property of a model of a financial
market is that it allows for easycomputation of the Greeks. The
Greeks in the Black-Scholes model are very easy to calculate
and this is one reason for the model's continued popularity in
the market(downloaded
from http://en.wikipedia.org/wiki/The_Greeks.).
Beta: a measure of how closely the movement of an individual
stock tracks the movement of the entire stock market.
Delta: The Delta is a measure of the relationship between an
option price and the underlying stock price. For a call option, a
Delta of .50 means a half-point rise in premium for every dollar
that the stock goes up. For a put option contract, the premium
rises as stock prices fall. As options near expiration, in the
money contracts approach a Delta of 1.
Gamma: Sensitivity of Delta to unit change in the underlying.
Gamma indicates an absolute change in delta. For example, a
Gamma change of 0.150 indicates the delta will increase by
0.150 if the underlying price increases or decreases by 1.0.
Results may not be exact due to rounding.
Lambda: A measure of leverage. The expected percent change in
the value of an option for a 1 percent change in the value of the
5. underlying product. Lambda/Leverage.
Rho: Sensitivity of option value to change in interest rate. Rho
indicates the absolute change in option value for a one percent
change in the interest rate. For example, a Rho of .060 indicates
the option's theoretical value will increase by .060 if the
interest rate is decreased by 1.0. Results may not be exact due
to rounding. Rho/Rate.
Theta: Sensitivity of option value to change in time. Theta
indicates an absolute change in the option value for a 'one unit'
reduction in time to expiration. The Option Calculator assumes
'one unit' of time is 7 days. For example, a theta of -250
indicates the option's theoretical value will change by -.250 if
the days to expiration is reduced by 7. Results may not be exact
due to rounding. NOTE: 7-day Theta changes to 1 day Theta if
days to expiration is 7 or less (see time decay). Theta/Time .
Vega (kappa, omega, tau): Sensitivity of option value to change
in volatility. Vega indicates an absolute change in option value
for a one percent change in volatility. For example, a Vega of
.090 indicates an absolute change in the option's theoretical
value will increase by .090 if the volatility percentage is
increased by 1.0 or decreased by .090 if the volatility
percentage is decreased by 1.0. Results may not be exact due to
rounding. Vega/Volatility.
WEEK TEN
Lecture Notes: THE GREEKS & AMERICAN OPTION
PRICING
This week’s lesson gives you a bit more time to study the
“Greeks” and how they are used. The lesson continues to detail
the material from last week’s lesson in terms of the various
pricing models and elements thereof.
6. Before moving any further into the material, please spend
plenty of time on “The Greeks” (aka option sensitivities). Here
are my lecture notes on this important topic, along with some
info on hedging:
The Greeks1
The Greeks are a collection of statistical values (expressed as
percentages) that give the
investor a better overall view of how a stock has been
performing. These statistical values can be helpful in deciding
what options strategies are best to use. The investor should
remember that statistics show trends based on past performance.
It is not guaranteed that the future performance of the stock will
behave according to the historical numbers. These trends can
change drastically based on new stock performance.
The Greeks are vital tools in risk management. Each Greek
(with the exception of theta) represents a specific measure
of riskin owning an option, and option portfolios can be
adjusted accordingly ("hedged") to achieve a desired exposure;
see for example Delta hedging.
As a result, a desirable property of a modelof a financial
marketis that it allows for easy computationof the Greeks.
The Greeks in the Black-Scholes modelare very easy to
calculate and this is one reason for the model's continued
popularity in the market.
Beta: a measure of how closely the movement of an individual
stock tracks the movement of the entire stock market.
Gamma: Sensitivity of Delta to unit change in the underlying.
Gamma indicates an absolute change in delta. For example, a
Gamma change of 0.150 indicates the delta will increase by
0.150 if the underlying price increases or decreases by 1.0.
Results may not be exact due to rounding.
Lambda: A measure of leverage. The expected percent change in
the value of an option for a 1 percent change in the value of the
underlying product. Lambda/Leverage.
Rho: Sensitivity of option value to change in interest rate. Rho
indicates the absolute change in option value for a one percent
7. change in the interest rate. For example, a Rho of .060 indicates
the option's theoretical value will increase by .060 if the
interest rate is decreased by 1.0. Results may not be exact due
to rounding. Rho/Rate.
Theta: Sensitivity of option value to change in time. Theta
indicates an absolute change in the option value for a 'one unit'
reduction in time to expiration. The Option Calculator assumes
'one
unit' of time is 7 days. For example, a theta of -250 indicates
the option's theoretical value will change by -.250 if the days to
expiration is reduced by 7. Results may not be exact due to
rounding. NOTE: 7-day Theta changes to 1 day Theta if days to
expiration is 7 or less (see time decay). Theta/Time .
Vega (kappa, omega, tau): Sensitivity of option value to change
in volatility. Vega indicates an absolute change in option value
for a one percent change in volatility. For example, a Vega of
.090 indicates an absolute change in the option's theoretical
value will increase by .090 if the volatility percentage is
increased by 1.0 or decreased by .090 if the volatility
percentage is decreased by 1.0. Results may not be exact due to
rounding. Vega/Volatility.
Because BS OPM isolates the effects of each variable’s effect
on pricing, it is said that these isolated, independent effects
measure the sensitivity of the options value to changes in the
underlying variables.
Volatility
· Important factor in deciding what type of options to buy
or sell.
· Shows the range that a stock’s price has fluctuated in a
certain period.
· Volatility is denoted as the annualized standard deviation
of a stock’s daily price change.
Volatility Measures
· Statistical Volatility - a measure of actual asset price
changes over a specific period of time ( a look - back)
8. · Implied Volatility - a measure of how much the "market
place" expects asset price to move, for an option price. That is,
the volatility that the market itself is implying ( a look- ahead).
Implied Volatilities
· The implied volatility calculated from a call option should
be the same as that calculated from a put option when both have
the same strike price and maturity.
More on Delta
· Delta (D) describes how sensitive the option value is to
changes in the underlying stock price.
Change in option price = Delta
Change in stock price
More on Gamma
· Gamma (G) is the rate of change of delta (D) with respect
to the price of the underlying asset.
· For example, a Gamma change of 0.150 indicates the delta
will increase by 0.150 if the underlying price increases or
decreases by 1.0.
Change in Delta = Gamma
Change in stock price
· Gamma can be either positive or negative
· Gamma is the only Greek that does not measure the
sensitivity of an option to one of the underlying assets. – it
measures changes to its Greek brother – Delta, as a result of
changes to the stock price.
More on Theta
· Theta (Q) of a derivative is the rate of change of the
value with respect to the passage of time.
· Or sensitivity of option value to change in time
9. Change in Option Price = THETA Change in time to
Expiration
· If time is measured in years and value in dollars, then
a theta value of –10 means that as time to option expiration
declines by .1 years, option value falls by $1.
· AKA Time decay:
o A term used to describe how the theoretical value of an
option "erodes" or reduces with the passage of time.
More on Vega
· Vega (n) is the rate of change of the value of a derivatives
portfolio with respect to volatility
· For example:
o a Vega of .090 indicates an absolute change in the option's
theoretical value will increase by .090 if the volatility
percentage is increased by 1.0 or decreased by
.090 if the volatility percentage is decreased by 1.0.
Change in Option Price = Vega
Change in volatility
· Vega proves to us that the more volatile the underlying
stock, the more volatile the option price.
· Vega is always a positive number.
More on Rho:
· Rho is the rate of change of the value of a derivative with
respect to the interest rate
· For example:
a Rho of .060 indicates the option's theoretical value will
increase by .060 if the interest rate is decreased by 1.0.
Change in option price = RHO Change in interest rate
· Rho for calls is always positive
· Rho for puts is always negative
· A Rho of 25 means that a 1% increase in the interest rate
would:
10. o Increase the value of a call by $.25
o Decrease the value of a put by $.25
Corporate Use Of Derivatives For Hedging
January 4, 2005 | By David Harper, (Contributing Editor -
Investopedia Advisor)
If you are considering a stock investment and you read that the
company uses derivatives to hedge some risk, should you be
concerned or reassured? Warren Buffett's stand is famous: he
has attacked all derivatives, saying he and his company "view
them as time bombs, both for the parties that deal in them and
the economic system" (2003 Berkshire Hathaway Annual
Report). On the other hand, the trading volume of derivatives
has escalated rapidly, and non-financial companies continue to
purchase and trade them in ever-greater numbers. Consider
the Chicago Mercantile Exchange,which is the largest exchange
for futures contractsin the United States. As of November
2004, the average daily volume of futures contracts reached 3.2
million, up a stunning 40% from the previous year. In the same
month, foreign-exchange futures set a new record for single-day
volume, reaching more than half-a-million contracts, with a
notional value of over $72 billion.
To help you evaluate a company's use of derivatives for
hedgingrisk, we'll look at the three most common ways to
use derivativesfor hedging.
Foreign-Exchange Risks
One of the more common corporate uses of derivatives is for
hedging foreign-currency risk, or
foreign-exchange risk, which is the risk that a change in
currency exchange rates adversely impacts
business results.
Let's consider an example of foreign-currency risk with ACME
Corporation, a hypothetical U.S.- based company that sells
widgets in Germany. During the year, ACME Corp sells 100
11. widgets, each priced at 10 euros. Therefore, our constant
assumption is that ACME sells 1,000 euros worth of widgets:
When the dollar-per-euro exchange rate increases from $1.33 to
$1.50 to $1.75, it takes more dollars to buy one euro, or one
euro translates into more dollars, meaning the dollar is
depreciating or weakening. As the dollar depreciates, the same
number of widgets sold translates into greater sales in dollar
terms. This demonstrates how a weakening dollar is not all bad:
it can boost export sales of U.S. companies. (Alternatively,
ACME could reduce its prices abroad, which, because of the
depreciating dollar, would not hurt dollar sales; this is another
approach available to a U.S. exporter when the dollar is
depreciating.)
The above example illustrates the "good news" event that can
occur when the dollar depreciates, but a "bad news" event
happens if the dollar appreciates and export sales end up being
less. In the above example, we made a couple of very important
simplifying assumptions that affect whether the dollar
depreciation is a good or bad event:
(1) We assumed that ACME Corp manufactures its product in
the U.S. and therefore incurs its inventory or production costs
in dollars. If instead ACME manufactured its German widgets in
Germany, production costs would be incurred in euros. So even
if dollar sales increase due to depreciation in the dollar,
production costs would go up too! This effect on both sales and
costs is called a natural hedge: the economics of the business
provide their own hedge mechanism. In such a case, the higher
export sales (resulting when the euro is translated into dollars)
are likely to be mitigated by higher production costs.
(2) We also assumed that all other things are equal, and often
they are not. For example, we ignored
any secondary effects of inflation and whether ACME can
adjust its prices.
Even after natural hedges and secondary effects, most
12. multinational corporations are exposed to some form of foreign-
currency risk.
Now let's illustrate a simple hedge that a company like ACME
might use. To minimize the effects of any USD/EUR exchange
rates, ACME purchases 800 foreign-exchange futures contracts
against the USD/EUR exchange rate. The value of the futures
contracts will not, in practice, correspond exactly on a 1:1 basis
with a change in the current exchange rate (that is, the futures
rate won't change exactly with the spot rate), but we will
assume it does anyway. Each futures contract has a value equal
to the "gain" above the $1.33 USD/EUR rate. (Only because
ACME took this side of the futures position, somebody - the
counter-party - will take the opposite position):
In this example, the futures contract is a separate transaction;
but it is designed to have an inverse relationship with the
currency exchange impact, so it is a decent hedge. Of course,
it's not a free lunch: if the dollar were to weaken instead, then
the increased export sales are mitigated (partially offset) by
losses on the futures contracts.
Hedging Interest-Rate Risk
Companies can hedge interest-rate riskin various ways.
Consider a company that expects to sell a
division in one year and at that time to receive a cash windfall
that it wants to "park" in a good risk- free investment. If the
company strongly believes that interest rates will drop between
now and then,
it could purchase (or 'take a long position on') a
Treasuryfutures contract. The company is effectively locking in
the future interest rate.
Here is a different example of a perfect interest-rate hedge used
by Johnson Controls, as noted in its
2004 annual report:
Fair Value Hedges - The Company [JCI] had two interest rate
swaps outstanding at September 30,
13. 2004 designated as a hedge of the fair value of a portion of
fixed-rate bonds…The change in fair value of the swaps exactly
offsets the change in fair value of the hedged debt, with no net
impact on earnings. (JCI 10K, 11/30/04 Notes to Financial
Statements)
Source: www.10kwizard.com.
Johnson Controls is using an interest rate swap.Before it
entered into the swap, it was paying a variable interest rateon
some of its bonds. (For example, a common arrangement would
be to pay LIBORplus something and to reset the rate every six
months). We can illustrate these variable rate payments with a
down-bar chart:
Now let's look at the impact of the swap, illustrated below. The
swap requires JCI to pay a fixed rate of interest while receiving
floating-rate payments. The received floating-rate payments
(shown in the upper half of the chart below) are used to pay the
pre-existing floating-rate debt.
JCI is then left only with the floating-rate debt, and has
therefore managed to convert a variable-rate obligation into a
fixed-rate obligation with the addition of a derivative. And
again, note the annual report implies JCI has a "perfect hedge":
The variable-rate coupons that JCI received exactly
compensates for the company's variable-rate obligations.
Commodity or Product Input Hedge
Companies that depend heavily on raw-material inputs or
commodities are sensitive, sometimes
significantly, to the price change of the inputs. Airlines, for
example, consume lots of jet fuel. Historically, most airlines
have given a great deal of consideration to hedging against
crude-oil price increases - although at the start of 2004 one
major airline mistakenly settled (eliminating) all of its crude-oil
hedges: a costly decision ahead of the surge in oil prices.
14. Monsanto (ticker: MON) produces agricultural products,
herbicides and biotech-related products. It uses futures
contracts to hedge against the price increase of soybean and
corn inventory:
Changes in Commodity Prices: Monsanto uses futures contracts
to protect itself against commodity price increases… these
contracts hedge the committed or future purchases of, and the
carrying value of payables to growers for soybean and corn
inventories. A 10 percent decrease in the prices would have a
negative effect on the fair value of those futures of $10 million
for soybeans and $5 million for corn. We also use natural-gas
swaps to manage energy input costs. A 10 percent decrease in
price of gas would have a negative effect on the fair value of
the swaps of $1 million. (Monsanto 10K,11/04/04 Notes to
Financial Statements)
Source: www.10kwizard.com,
Conclusion
We have reviewed three of the most popular types of corporate
hedging with derivatives. There are
many other derivative uses, and new types are being invented.
For example, companies can hedge their weather risk to
compensate them for extra cost of an unexpectedly hot or cold
season. The derivatives we have reviewed are not generally
speculative for the company. They help to protect the company
from unanticipated events: adverse foreign-exchange or
interest-rate movements and unexpected increases in input
costs. The investor on the other side of the derivative
transaction is the speculator. However, in no case are these
derivatives free. Even if, for example, the company is surprised
with a good-news event like a favorable interest-rate move, the
company (because it had to pay for the derivatives) receives
less on a net basis than it would have without the hedge.
By David Harper, (Contributing Editor - Investopedia Advisor)
In addition to being a writer for Investopedia, David Harper,
CFA, FRM, is the founder of The Bionic Turtle, a set of study
15. aids designed to help finance professionals prepare for
certification exams. He is a contributing editor to the
Investopedia Advisorand Principal of investor alternatives, a
firm that conducts quantitative research, consulting (e.g.,
derivatives valuation), litigation support and financial
education.
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